MortgagesMay 9 2023

Deposit-free mortgages return to market

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Deposit-free mortgages return to market

A deposit-free mortgage, specifically aimed at people renting, has been launched by Skipton Building Society.

Tenants who can show affordability for a mortgage and have 12 months of on-time rental payments will be able to borrow the full value of a property with Skipton’s latest five-year fixed rate mortgage.

The lender said it expects demand for this product to soar and warned that it may sell out quickly. 

Named the ‘track record mortgage’, interest on the product will sit at 5.49 per cent over a maximum term of 35 years.

The Skipton product is the first 100 per cent mortgage to return to the market for sometime and brokers have warned that borrowers should proceed with caution due to concerns over the potential for negative equity. 

However, Skipton’s chief executive of home financing, Charlotte Harrison said the product fills a “clear gap” for first-time buyers who do not have the benefit of family wealth or savings. 

“It is time for a re-think on these massive barriers to home ownership, and we’re proud to take the lead on bringing to the market, solutions for such a massive social problem.

“We need to tackle the UK’s housing affordability crisis to enable more people, especially renters who are trapped in renting cycles, to buy their first home.

“People trapped in renting is one of the UK’s biggest housing challenges, having a massive impact on the fabric of our society. With escalating rents and the cost-of-living squeeze further impacting people’s ability to save for a house deposit – it’s making it almost impossible for people to get onto the property ladder,” Harrison said. 

Addressing the concerns around negative equity, Harrison added that the product has been designed with this in mind and borrowers are able to choose between a 100 per cent and 95 per cent loan-to-value.

Skipton has also stipulated that the monthly mortgage repayment will be no more than the average of the borrower’s last six months rental costs. 

For example, a tenant paying an average of £800 per month over the last six months will have a maximum monthly mortgage payment of £800.

Currently, there are 4.6mn households renting privately across England, more than double the number recorded in 2000.

Rental research from Skipton has shown that eight in 10 tenants feel ‘trapped’ in the rental cycle, paying rents that are higher than a mortgage which then prevents them saving a deposit to buy their own home. 

At the same time house prices for first time buyers have risen by an average of 18 per cent in the last two years, an increase of £39,680.

The cost-of-living crisis is cited as the main setback for renters, who are now saving less for a deposit than ever before, with 41 per cent stating house prices in their area are rising too quickly for them to keep up. 

“We know there isn’t one quick solution to addressing this huge societal challenge of tenants being trapped in renting cycles, with rents escalating faster than mortgage payments and the increasing costs of living, but doing nothing isn’t going to solve this UK housing issue,” Harrison said. 

“As a responsible lender, we need to be sensible with our approach for bringing this product to the market and ensure tenants don’t take on more than they can realistically afford. 

“We know this product will not be able to help everyone and is only part of the solution for this group of people, but as a lender, we’re taking a stand to offer innovation in this space to help turn generation rent into generation buy.”